Buying a plot of land in India is a good investment, whether for building your dream home or as a long-term financial asset. However, buying land is usually costly, and not everyone has the liquidity to make an outright purchase.
This is where plot purchase loans, or land loans, come in. These loans are meant to finance the acquisition of residential plots, making land ownership easier. In this post, we will discuss how to apply for a plot purchase loan and what documents are needed to get approval.
What is a Plot Purchase Loan?
A plot purchase loan is a loan provided by banks and financial institutions to a person who wants to buy a piece of land. Home loans are meant for buying ready-built houses or constructing a house. Still, plot purchase loans are solely for the purchase of residential plots within municipal or local development authority limits. However, these loans usually have conditions attached and higher land loan interest rates than regular home loans.
Application Process for a Plot Purchase Loan
The plot purchase loan is easy to obtain, and it requires good planning and documentation. Below are the key steps involved:
1. Choose the Right Lender and Research
The first thing you would do when applying for a plot purchase loan is to research different banks and financial institutions. Check their interest rates, eligibility criteria, processing fees and terms. However, remember that land loan interest rates are higher than home loan rates, and you must choose the right lender for long-term affordability.
2. Check Your Eligibility
There are a number of factors that lenders consider when deciding whether or not to approve a plot purchase loan. These include:
- Age: Usually, the applicant should be between 21 and 65 years of age.
- Income: Whether salaried or self-employed, you need a stable source of income.
- Credit Score: Having a good credit score (above 750) will help you get approved and also get you better rates.
- Location of the Plot: It must be within municipal or development authority-approved limits.
3. Submit the Loan Application
After you have selected a lender and confirmed that you satisfy the eligibility criteria, you fill out the loan application form. Either you can submit your application online through the lender’s website or you can visit a branch.
4. Provide Necessary Documents
Submit the required documents along with the application. They prove your identity, income, and the legal status of the property.
5. Loan Sanction and Approval
Once you submit your documents, the lender will check your details and the legal and market value of the property. Once everything is in order, the loan will be sanctioned. The sanctioned amount is usually 70-80% of the plot cost, and the borrower must pay the remaining amount as a down payment.
After approval, the loan amount is disbursed to the seller or developer, and the purchase is complete.
Types of Loans to Buy Land
There are different loan options to consider when purchasing land. Below are the common types of loans to buy land:
- Residential Plot Loan: This loan type is for the purchase of residential plots. The land must be used to build a home within a specified time frame.
- Agricultural Land Loan: A loan for agricultural land is intended for buying agricultural land for farming purposes. Residential plot loans are different from such loans in terms of terms and interest rates.
- Commercial Plot Loan: For commercial use of the land, you can choose a commercial plot loan. Usually, these loans come with higher interest rates and shorter repayment tenures.
Documents Required for the Plot Purchase Loan
Documentation is very important in the process of getting a loan approved. Below is a checklist of the commonly required documents for a plot purchase loan:
1. Identity Proof
- Aadhar Card
- Passport
- Voter ID
- Driving License
2. Address Proof
- Utility Bills
- Passport
- Rental Agreement
3. Income Proof
- For salaried individuals, you need salary slips.
- Income Tax Returns (for self-employed individuals)
- Last six months’ bank statements.
4. Property Documents
- Sale agreement
- Title deed
- Encumbrance certificate
- Municipal or development authorities’ approval
5. Additional Documents
- Loan application form
- Passport-sized photographs
- Cheque for processing fees
Key Features of Plot Purchase Loans
- Loan-to-Value Ratio (LTV): Most lenders offer a loan for up to 70-80% of the property’s cost and ask the borrower to pay the rest.
- Repayment Tenure: Flexible tenures of plot purchase loans are 5 to 15 years.
- Interest Rates: Earlier, we mentioned that the interest rates for land loans are higher than those for home loans because of the additional risk involved.
- Tax Benefits: Plot purchase loans are not like home loans that provide tax benefits unless the borrower builds a house on the plot.
- Flexible Usage: Some lenders allow borrowers to include construction costs in the loan as long as construction starts within a certain time frame.
Conclusion
A plot purchase loan is a great financial tool for people who wish to buy land. To navigate the journey with confidence, it’s important to understand the application process, eligibility criteria, and required documents. Remember to research, pick a trusted lender, and make sure the plot meets all legal and regulatory requirements. Owning your dreamland is possible with proper planning.
